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Sunday, November 29, 2009

What comes after Google?

One of the reasons that I started looking at the New Zealand economy was due to an inspirational presentation by Dr Paul Callaghan. Dr Callaghan wants New Zealand to return to the top of the OECD wealth rankings through embracing high technology entrepreneurism. "Let's do the business case" he said; and knowing a bit about business cases, strategy and such things I thought I would have a go.

Unfortunately I haven't helped Dr Callaghan much. So far I haven't been able to establish a strategic advantage that stands out that New Zealand could leverage internationally. Those countries that established high technology economies did so because the timing was right and they took their opportunities. Most did it because they had a history of it, some were already wealthy and sought to diversify at the right time and some were opportunists. New Zealand is probably 30 years (maybe even 40 years) late in its attempt to go high technology (except in agriculture which we already do). Still, as I feel I have let Dr Calaghan down I have asked myself the question "Why wouldn't the next Google grow in New Zealand?"

Everyone wants a Google. Google is high technology, it is very 'weightless' and it is enormously successful. In theory a Google could happen anywhere but Googles don't happen everywhere they (if we include Microsoft, Apple and the plethora of Electronic Arts, Facebooks, MySpaces, etc) they happen in one place - the west coast of the United States (technically Facebook started on the east coast but is now based on the west coast).

So how did Google start? It all started as a research project at Stanford University for Larry Page, who was joined by Sergey Brin. They explored a different method for prioritising web searches, successfully. Then they put the software into online production, founded the website and the company, raised $1.1million dollars, identified the profit making business model and exploded into massive success. Pretty easy really - although obviously it isn't.

Professor Jim Collins of Harvard published his key principles of building a great business and Page and Brin followed it exceptionally well. They were really good at what they were doing. They were passionate about it and started the business and raised the capital and then they worked out how to make money from it. Google also ticks the strategic marketing boxes - create a demand no-one knew they wanted, mass-customise it for both demand and supply, suppliers flock to you, clip the ticket. Think how successful this is by also considering Sony's Playstation and Apple's Ipod (or Iphone). Create something people want, make it accessible to both customers and alternative suppliers with as much flexibility and capability as you can. Clip the ticket. Page and Brin went one better. They tapped into the enormous content of the internet and made it freely available. Free supply and free demand means huge use. Work out that the same technology that makes the search engine so successful will also be perfect for automatically matching advertisers to people searching for their stuff and there you have a new economic empire.

But how did two students manage to suddenly become software corporate superstars (in a story not too different from Microsoft by the way)? Well, let's not underestimate Stanford whose alumni are also responsible for Nike, Hewlett-Packard, Electronic Arts, Sun Microsystems, Nvidia, Yahoo!, Cisco Systems and Silicon Graphics. Is it an accident that Silicon Valley grew up around Stanford?

How about the environment? I can't remember the article but I remember reading about the environment of places like Seattle and Palo Alto. The young people are published and known to the industry and the cafes, shops and general environs are full of the top guns. These are safe and pleasant environments where everyone mixes. People meet, deals are done and ideas flourish. In what environment in New Zealand would two students meet the founder of Sun Microsystems (or equivalent) who would then decide that he liked their ideas and hand over a check for US$100,000?

Interestingly it wasn't Google who worked out (technically) how to make money from advertising, it was a crowd called Overture (originally Goto.com) who were bought by Yahoo! A legal battle ensued between the two competitors and resulted in a deal that I just don't think could ever be done in New Zealand. Google got the final piece in their business model puzzle and Yahoo! got a share of the Google action. I feel confident that such a battle in New Zealand would have gone on (bitterly) for ever in the courts to the detriment of both parties. Some might argue that Google got the better of the deal but Yahoo! got a share of that success and went on to find their own niche.

Then Google went on to the second stage of its success story. Stay true to the business model (free service to internet demand and clip the ticket on advertising and supply) but be prepared to buy the new ideas (such as Google Earth).

So why wouldn't it happen in New Zealand? What would we need? A couple of brilliant PhD students with a good idea, a world leading University, an almost cultural attitude to entrepreneurism (a desire to be good at something, to be passionate about it and how to make money), an environment of good ideas, collaboration and some spare money, an attitude of getting the deal done and getting on with it and lots more available good ideas.

And what does New Zealand have? Apparently we have the students. New Zealand ranks well in the world for education quality (although we also manage to have quite high levels of illiteracy - ie we're good and bad). Supposedly we have the good ideas but we are under represented in patents, which suggests that we either don't have the good ideas or we don't follow through.

We don't have the world leading universities. We have universities that are dedicated to fractious infighting under a funding system that makes them scrap for morsels. We have universities expending enormous effort in explaining why they should get public money rather than demonstrating that they should get public money. We have universities almost completely divorced from business (although this is as much business fault as the universities); and when they do collaborate it is again to fight for the public purse. We have universities rooted, for all practical purposes, in medieval fuedalism. Only the heriditary lordships are gone, instead the lordly posts are given out on time served without being difficult.

Dr Callaghan suggests that a major problem with entrepreneurism in New Zealand is cultural; and I agree. New Zealanders like to be good at things (to an extent) but one should never ever be proud and passion is for those foreign types. Part of New Zealand is almost calivinist in its attitude. Only those who suffer in their work are morally worthy. No wonder the young people of New Zealand want to go overseas to experience life while they are young. New Zealand may be a great place to live but it is a crap place to work. Academically gifted New Zealanders who manage to escape the medieval fiefdoms become destined to either give in to the technocratic bureaucracies of political Wellington or the technochratic bureaucracies of corporate Auckland; or go overseas. In the absence of a passion of purpose then the need to make money becomes devoted to the passion of consumption.

In terms of the rest of the environmental piece, the good ideas, the collaboration, the spare money and the positivist attitudes; well I think that this comes only when a country is rich. History suggests this strongly. The Renaissance was triggered by wealthy patrons who had the leisure time to take an interest themselves. The scientific discoveries of the Reformation and the Enlightenment were triggered by wealthy patrons (who often had the leisure to do the science themselves). The great thinkers of the enlightenment were either proteges of wealthy patrons or wealthy landowners themselves. The industrial revolution was triggered again by wealthy patrons (who again often did the science themselves). The great American universities, schools and museums were nearly all created by philanthropy during the United States great wealth boom.

Entrepreneurism isn't, I think, the trigger of wealth; it is triggered by wealth. Perhaps the old adage "the rich get richer" is a truism. If New Zealand wants to get generally entrepreneurial then it needs to be generally richer. Dr Callaghan makes the point that New Zealand has its success stories. Weta Workshops is a great example. However, I think that Weta shows that the really strong plants can survive in all but the most dessicated of deserts. The point isn't that the desert can have life. The point is that a desert will only become a jungle if its whole climate changes.

Unfortunately, I think scale is also important. Silicon Valley gestates so many good ideas because it has many well educated, connected, wealthy people. New Zealand could only achieve this kind of scale in a city the size of Auckland, but Auckland is spread out. Much of Auckland doesn't even consider itself one city.

Can the next Google come from New Zealand? Yes, it could. It is, however, very unlikely. It is most likely to come from where it has come before. A jungle of growing entrepreneurism is most likely where there is already some wealth. Where there is both scale and intensity. Where there is passion and optimism. And, where there is excellence and pride in learning and knowing.

It is worth listening to Dr Callaghan. If we do some things better then we should improve our technological development. However, this will only improve things, I fear, at the margin. To make a big difference in New Zealand's fortunes would need reforms far more fundamental. Ones we may not actually be willing to make; and certainly not the sophistry preached by our political elite.

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